Wednesday, April 04, 2007

Borders: The Gang That Couldn't Shoot Straight

Quick on the heals of their mediocre strategy declaration a couple of weeks ago the company announced yesterday a reasonably significant recapitalization of their current and revolving debt facility. True to form, the details were not exactly clear in the press release why this strategy made sense and why their financial advisers seemed to have a material stake in the effort. So arcane is the description of what they intend to do with the $250mm that I have yet to find a financial report deciphering it.

Borders Group has been advised that, in connection with establishing a hedge of the convertible note hedge and warrant transactions, the counter parties to those transactions or their affiliates expect to enter into various derivative transactions with respect to Borders Group's common stock concurrently with or shortly after the pricing of the notes. The counter parties or their affiliates may also enter into or unwind various derivative transactions with respect to Borders Group common stock and/or purchase or sell Borders Group common stock in secondary market transactions following the pricing of the notes (and are likely to do so during any observation period relating to the conversion of a note).

The lack of reporting could also be the result of their apparent omission of any reference to an action like this in aforesaid strategic plan. Nevertheless, it doesn't really matter since this morning they decided that they needed to reconsider and that they were cancelling the offering. They blame shareholder feedback - which must have been pretty swift - and my guess is that the existing shareholders were not at all convinced that this financial restructure wasn't going to be immediately dilutive. It is also likely the shareholders found out via the press which doesn't seem ideal....

Borders Group, Inc. (NYSE: BGP) has determined, based on shareholder feedback,to re-evaluate its proposed offering of $250 million of Convertible SeniorNotes, announced yesterday. The offering will not proceed today as originallyplanned while the company re-evaluates this and other financing alternatives.Upon completion of this re-evaluation process, Borders Group will issue anupdate at a later date.

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Michael Cairns

Michael Cairns has served as CEO and President of several technology and content-centric business supporting global media publishers, retailers and service providers. He can be reached at michael.cairns@outlook.com and is interested in executive management and consulting, board and/or advisory positions. I am currently Managing Director with Digital Prism Advisors where we advise clients on digital and business transformation.

My career spans a wide range of publishing and information products, services and B2B categories and my operating and consulting experience has largely been with brand-name companies such as PriceWaterhouseCoopers, Macmillan, Inc., Berlitz International, AARP, R.R. Bowker and Wolters Kluwer.

I have served as a board member of the Association of American Publishers (AAP), the Book Industry Study Group (BISG) and in addition to my responsibilities at R.R. Bowker, l also served as Chairman of the International ISBN Executive Committee.